UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


	☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020


	☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-35366

FORTRESS BIOTECH, INC.

(Exact name of registrant as specified in its charter)


Delaware	20-5157386
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

2 Gansevoort Street, 9th Floor

New York, New York 10014

(Address including zip code of principal executive offices)

(781) 652-4500

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of Class	Trading Symbol(s)	Exchange Name
Common Stock	FBIO	Nasdaq Capital Market
9.375% Series A Cumulative Redeemable Perpetual Preferred Stock	FBIOP	Nasdaq Capital Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ⌧ No ◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧ No ◻

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:


Large accelerated filer	◻	Accelerated filer	⌧
Non-accelerated filer	◻	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻

Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒



Class of Stock		Outstanding Shares as of November 5, 2020
Common Stock, $0.001 par value		93,702,861
9.375% Series A Cumulative Redeemable Perpetual Preferred Stock, $0.001 par value		3,427,138

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Unaudited Condensed Consolidated Financial Statements

FORTRESS BIOTECH, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

($ in thousands except for share and per share amounts)


	September 30,		December 31,
	2020		2019
	(Unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	218,389	$	136,858
Accounts receivable (net of allowance for doubtful accounts of $147 and $100 at September 30, 2020 and December 31, 2019, respectively)		15,653		13,539
Inventory		1,052		857
Other receivables - related party		939		865
Prepaid expenses and other current assets		1,704		4,133
Total current assets		237,737		156,252

Property and equipment, net		12,114		12,433
Operating lease right-of-use asset, net		20,265		21,480
Restricted cash		1,645		16,574
Long-term investment, at fair value		11,723		11,148
Intangible asset, net		11,039		7,377
Other assets		1,356		1,158
Total assets	$	295,879	$	226,422

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable and accrued expenses	$	32,542	$	35,451
Accounts payable and accrued expenses - related party		19		—
Interest payable		23		1,042
Interest payable - related party		—		92
Notes payable, short-term		—		7,220
Operating lease liabilities – short-term		1,697		1,784
Derivative warrant liability		—		27
Other current liabilities		3,000		—
Total current liabilities		37,281		45,616

Notes payable, long-term (net of debt discount of $8,607 and $5,086 at September 30, 2020 and December 31, 2019, respectively)		51,393		77,436
Operating lease liabilities – long-term		22,855		23,712
Other long-term liabilities		8,205		7,126
Total liabilities		119,734		153,890

Table of Contents

FORTRESS BIOTECH, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

($ in thousands except for share and per share amounts)


	September 30,		December 31,
	2020		2019
	(Unaudited)
Commitments and contingencies

Stockholders’ equity
Preferred stock, $.001 par value, 15,000,000 authorized, 5,000,000 designated Series A shares, 3,427,138 and 1,341,167 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively; liquidation value of $25.00 per share		3		1
Common stock, $.001 par value, 150,000,000 shares authorized, 93,748,374 and 74,027,425 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively		94		74
Common stock issuable, 5,451 and 251,337 shares as of September 30, 2020 and December 31, 2019, respectively		18		500
Additional paid-in-capital		574,461		461,874
Accumulated deficit		(477,465)		(436,234)
Total stockholders' equity attributed to the Company		97,111		26,215

Non-controlling interests		79,034		46,317
Total stockholders' equity		176,145		72,532
Total liabilities and stockholders' equity	$	295,879	$	226,422

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Table of Contents

FORTRESS BIOTECH, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

($ in thousands except for share and per share amounts)

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Revenue
Product revenue, net	$	9,447	$	9,492	$	30,808	$	23,816
Revenue - related party		28		280		1,042		1,683
Net revenue		9,475		9,772		31,850		25,499

Operating expenses
Cost of goods sold - product revenue		3,379		2,702		10,313		6,972
Research and development		13,298		14,571		43,868		56,355
Research and development - licenses acquired		458		700		2,278		1,350
General and administrative		15,383		14,339		45,358		41,260
Total operating expenses		32,518		32,312		101,817		105,937
Loss from operations		(23,043)		(22,540)		(69,967)		(80,438)

Other income (expense)
Interest income		265		738		1,228		1,955
Interest expense and financing fee		(6,958)		(3,168)		(13,142)		(8,743)
Change in fair value of derivative liability		(803)		—		(1,189)		—
Change in fair value of investments		575		—		575		—
Gain on deconsolidation of Caelum		—		—		—		18,521
Total other income (expense)		(6,921)		(2,430)		(12,528)		11,733
Net loss		(29,964)		(24,970)		(82,495)		(68,705)

Less: net loss attributable to non-controlling interests		14,417		12,208		41,264		44,237
Net loss attributable to common stockholders	$	(15,547)	$	(12,762)	$	(41,231)	$	(24,468)

Net loss per common share - basic and diluted	$	(0.39)	$	(0.44)	$	(1.19)	$	(1.29)
Net loss per common share attributable to non - controlling interests - basic and diluted	$	(0.19)	$	(0.21)	$	(0.59)	$	(0.83)
Net loss per common share attributable to common stockholders - basic and diluted	$	(0.20)	$	(0.22)	$	(0.59)	$	(0.46)

Weighted average common shares outstanding - basic and diluted		76,093,211		56,856,821		69,404,499		53,060,565

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Table of Contents

FORTRESS BIOTECH, INC. AND SUBSIDIARIES

Condensed Consolidated Statement of Changes in Stockholders’ Equity

($ in thousands)

(Unaudited)

For the Three Months Ended September 30, 2020


																	Total
	Series A																Stockholders’
	Preferred Stock			Common Stock			Shares		Treasury		Paid-In		Accumulated		Non-Controlling		Equity
	Shares	Amount		Shares	Amount		Issuable		Stock		Capital		Deficit		Interests		(Deficit)
Balance at June 30, 2020	2,693,806	$	3	86,113,331	$	86	$	813	$	—	$	521,493	$	(461,918)	$	56,381	$	116,858
Stock-based compensation expense	—		—	—		—		—		—		3,171		—		—		3,171
Issuance of common stock related to equity plans	—		—	268,800		—		—		—		—		—		—		—
Issuance of common stock for at-the-market offering, net	—		—	7,064,214		7		—		—		21,110		—		—		21,117
Preferred A dividends declared and paid	—		—	—		—		—		—		(1,719)		—		—		(1,719)
Issuance of Series A preferred stock for cash, net	733,332		—	—		—		—		—		11,965		—		—		11,965
Partner company’s offering, net	—		—	—		—		—		—		18,774		—		—		18,774
Partner company’s at-the-market offering, net	—		—	—		—		—		—		23,053		—		—		23,053
Partner company’s preferred stock offering, net	—		—	—		—		—		—		7,088		—		—		7,088
Issuance of common stock under partner company’s ESPP	—		—	—		—		—		—		180		—		—		180
Partner company’s dividends declared and paid	—		—	—		—		—		—		(50)		—		—		(50)
Reclass partner company's warrants from liability to equity	—		—	—		—		—		—		1,216		—		—		1,216
Issuance of partner company’s common shares for research and development expenses	—		—	—		—		—		—		21		—		—		21
Common shares issued for 2017 Subordinated Note Financing interest expense	—		—	302,029		1		(500)		—		810		—		—		311
Write off common shares issuable for 2019 Notes interest expense	—		—	—		—		(313)		—		—		—		—		(313)
Common shares issuable for service	—		—	—		—		18		—		—		—		—		18
Issuance of warrants in conjunction with Oaktree Note	—		—	—		—		—		—		4,419		—		—		4,419
Non-controlling interest in partner companies	—		—	—		—		—		—		(37,070)		—		37,070		—
Net loss attributable to non-controlling interest	—		—	—		—		—		—		—		—		(14,417)		(14,417)
Net loss attributable to common stockholders	—		—	—		—		—		—		—		(15,547)		—		(15,547)
Balance at September 30, 2020	3,427,138	$	3	93,748,374	$	94	$	18	$	—	$	574,461	$	(477,465)	$	79,034	$	176,145

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Table of Contents

FORTRESS BIOTECH, INC. AND SUBSIDIARIES

Condensed Consolidated Statement of Changes in Stockholders’ Equity

($ in thousands)

(Unaudited)

For the Three Months Ended September 30, 2019


	Series A														Total
	Preferred Stock			Common Stock			Shares		Paid-In		Accumulated		Non-Controlling		Stockholders’
	Shares	Amount		Shares	Amount		Issuable		Capital		Deficit		Interests		Equity
Balance at June 30, 2019	1,000,000	$	1	68,138,203	$	68	$	490	$	439,295	$	(407,980)	$	57,946	$	89,820
Stock-based compensation expense	—		—	—		—		—		3,741		—		—		3,741
Issuance of restricted stock	—		—	177,292		—		—		—		—		—		—
Issuance of common stock for at-the-market offering, net	—		—	1,213,643		1		—		1,930		—		—		1,931
Issuance of preferred A for at-the-market offering, net	26,111		—	—		—		—		523		—				523
Preferred A dividends declared and paid	—		—	—		—		—		(601)		—		—		(601)
Partner company’s offering, net	—		—	—		—		—		52		—		—		52
Partner company’s at-the-market offering, net	—		—	—		—		—		3,341		—		—		3,341
Common shares issuable for 2017 Subordinated Note Financing interest expense	—		—	—		—		500		—		—		—		500
Common shares issued for 2017 Subordinated Note Financing interest expense	—		—	317,804		1		(490)		489		—		—		—
Common shares issued for 2019 Notes interest expense	—		—	91,767		—		—		165		—		—		165
Common shares issued for 2019 Notes debt repayment	—		—	396,825		—		—		500		—		—		500
Non-controlling interest in subsidiaries	—		—	—		—		—		(3,467)		—		3,467		—
Write off of partner company note receivable	—


PART I.	FINANCIAL INFORMATION	1
Item 1.	Unaudited Condensed Consolidated Financial Statements	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	40
Item 3.	Quantitative and Qualitative Disclosures About Market Risks	51
Item 4.	Controls and Procedures	52

PART II.	OTHER INFORMATION	52
Item 1.	Legal Proceedings	52
Item 1A.	Risk Factors	85
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	86
Item 3.	Defaults Upon Senior Securities	86
Item 4.	Mine Safety Disclosures	86
Item 5.	Other Information	86
Item 6.	Exhibits	86

SIGNATURES		87